ISLAMABAD, Aug 13 Serious cash flow problems, which border on bankruptcy, have forced Islamabad's Defence Housing Authority (DHA) to seek a moratorium on the repayment of over Rs10 billion loans from a consortium of commercial banks for two years.

The authority landed in these financial hot waters because of mismanagement as it made extraordinarily heavy payments to third party contractors for acquisition of land.

Documentary evidence available with Dawn indicates that a formal request for a moratorium has been sent to the banking consortium. Informed sources said the DHA had not only refused to pay back loans to Askari Commercial Bank, Bank Alfalah and the United Bank besides a number of smaller banks but had also asked for a waiver of interest rate payments for two years. They said all the three main banks were unwilling to give up their earnings from the interest rate, which amounted to Rs3 billion. But Askari Bank's management was the most troubled over the impact the move would have on its balance sheet.

Askari Bank, in fact, faces a more serious problem than the other two banks. It is now caught between two uniformed stakeholders; on the one hand it has to deal with its depositors, mostly from the armed forces who will not be happy with a balance sheet in the red, and on the other it has a housing authority whose plot owners also come from the armed forces, a source said.

Dawn has learnt that the DHA has asked the consortium of banks to merge all separate outstanding loans including demand finance and cash finance into one facility - and on one existing interest rates. The total outstanding amount on these counts stands at about Rs12 billon, including UBL's Rs4 billion, Askari's Rs3 billion and Alfalah's Rs2.5 billion. The three banks together hold about 80 per cent of the loan portfolio outstanding against DHA. The interest payable on these loans is around Rs1.5 billion per annum.

Sources said the DHA had also asked the banking sector for a two year moratorium on payment of both mark-up and principal amount and extension in grace period for another two years and then biannual schedule for repayment of the principal and mark-up. This is unusual as repayments are usually made every month or every quarter. In addition, under normal practice, when loans are rescheduled, the interest rate increases. This, again, is contrary to what DHA wants.

Banking experts, as a result, point out that DHA's demands violate the rules of the State Bank of Pakistan.

The situation is such that under standard operating procedures the SBP could ask the three banks to declare the housing firm bankrupt and proceed for recovery of loans in a court of law.

The difficulty, they said, was that Askari Commercial Bank as an arm of the Army Welfare Trust would not be able to sue another arm of the armed forces. And the other two banks cannot afford to take on such an influential 'business group'; secondly they are finan- cially much secure with bigger portfolio.

The sources said the DHA's financial position was so critical that it had also hindered its payments to contractors, suppliers and employees. This has led to inordinate delays in project development for which the DHA charges its military and civilians plot holders regularly. And this is causing resentment among its residents and property owners “If a member delays a payment installment, the DHA immediately applies a 10-15 per cent late payment surcharge. But now that the authority itself is facing problems in paying its own liabilities, it is seeking a moratorium from banks,” said an affected banker.

The sources said the DHA's problems stem from the huge size of the housing authority. Stretching from Rawalpindi city on one side to Rawat and beyond on the other, it outsourced acquisition of land to powerful private parties. The private parties hoodwinked the DHA by acquiring thousands of acres of land at exorbitant rates. It is alleged that these private parties made 300 per cent profit as they sold property to the DHA at extremely high rates, arguing that they had to pay off scores of officials in the chain, face criminal cases and earn bad publicity in the process.

DHA's Chief Financial Officer Rizwan Hassan Khan, however, said the authority faced no financial crisis. He said some work may have been delayed or slowed down but that was mainly due to market factors. He said his organisation did not have any issue with the banking sector, adding DHA had not sought any moratorium on its outstanding loans.